Which Bank Stocks to buy in the post Brexit rubble Challengers Incumbents or None
Consider this like a digital version of old-fashioned investing club where friends got together with some social lubricant and discussed stocks, sharing their experience/insights. Sort of a very small version of wisdom of the crowd. Sorry about the lack of tea/coffee or something stronger.
I created this as a Wiki, so add any I have missed. If somebody wants to add data points to these stocks or insights, that would be brilliant (as we say in Blighty)
- Standard Chartered
Hard to tell: Virgin Money: new brand, old bank.
Strategic tailwind: PSD2 favours Challengers, but post Brexit, we don’t know how this will play out.
Recession risk. It looks like England will enter recession. What happens to default rates and assuming more QE and prolonged ZIRP, what will happen to deposits?
Is there any difference in customers between Incumbents and Challengers? If so, how does this change the default risk assumptions?
Arguments for Challengers
- Small means lower costs
- Small means they will partner with Fintechs rather than trying to save old legacy systems
- PE of both is very low
- They have lots to gain and little to lose as their current market share is so low.
- The UK Government will eventually do the sensible thing on PSD2 (while making noises about those pesky Brussels bureaucrats and this will give them a major tailwind advantage)
Arguments for Incumbents
- Challenger stocks are in Small Cap Hell
- No challenger has ever won in the past, the Big Four always win in the end.
- You need scale to withstand rough weather (seems like a Titanic argument to me)
- Today’s Challengers Banks will be disrupted by the next wave of Challenger and the Incumbents have the market cap to buy them
One Incumbent that looks attractive is Santander as they have many attributes of a Challenger.
Arguments for None
- List item
Bank Financials are just too hard for retail investors to understand, with big hidden risk under layers of obfuscation.
The Fintech Challenge is real
Lets co create an answer and pick up some gold in the rubble (or avoid fool’s gold).